About the author

James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.

Welcome to 2013 and your $200 billion tax hike — and more uncertainty

Forget about budgetary baselines for a second. What will Americans pay in taxes this year vs. last year in light of the fiscal cliff deal? Well, let’s run the numbers (with some help from JPMorgan):

— Payroll tax hike: $125 billion

— Income tax hike and the phaseout of exemptions: $35-50 billion

— Investment tax hike: $5 billion

— PPACA health care taxes: $38 billion

So that works out to roughly $220 billion, or 1.2% of GDP. It’s a deal that, as The Washington Post puts it, “takes money out of the hands of many Americans, sucking it out of the economy and slowing economic activity.”

The deal also worsens incentives to work, save, and invest. But at least it removes some uncertainty from the economic picture, right? Maybe not, says economist Mike Feroli of JPMorgan;

The sequestration associated with the Budget Control Act was deferred for two months. The fate of these across-the-board budget cuts come March remains uncertain. This uncertainty, combined with the unresolved fate of the debt ceiling, probably curtails any “certainty bounce” in confidence that would be expected with the resolution of the fiscal cliff.

If you let the sequestration stay, wouldn’t it remove the need for extending the debt ceiling?

In the long run, yes, but in the near term (the next few years), no. According to the Treasury, we will hit the debt ceiling in mid-February. If we cannot reach a deal by then to raise the debt ceiling, the government will be unable to pay its debts.

The sequestration, as it stands, will only cut about $109 billion per year (or about 11 days worth of work) from the government’s spending. Assuming any savings from these cuts are used to pay off the debt (and that the President’s OMB spending predictions are amazingly higher than what actually occurs), then several years from now the government would be back under the debt limit. But the debt ceiling will have to be raised before that can happen.

If the entire sequestration went into effect immediately, then the debt ceiling would be a non-issue. Unfortunately, that is not the case.

so… then the GOP who has spent 4 years saying we have a spending problem will only agree to raise the debt ceiling if the sequester stays in place and is not repealed?

I actually kind of doubt that. This will be the new legislature’s problem. I am no political scientist (and I have been wrong about political maneuvering just as often as I have been right), but I suspect we’ll see this vote come and go with minimal fuss. Many of the larger spending cuts were punted down to 2014. I suspect we’ll have another “fiscal cliff” debate in a year, but this time it will be louder as we will be in an actual recession by then.

I would argue that this rally is actually proof of Higg’s uncertianity Principle, but I will not go into this now (unless you want me to).

Secondly, I’d caution about using today’s data. This is just trading day 1 of approximately 216 in the year 2013. One day does not make a trend.

Finally, the stock market is a very poor indicator of economic activity and well-being. Historically, I have found there to be terrible correlation between the movements of the stock market and the overall economy. It is nice in that it is a daily number, but it really conveys no useful information, at least economically.

A day of trading means nothing to investors but it obviously meant something to lawmakers in 2008 when a selloff prompted them race back into session and pass TARP. Reuters has it right here. http://finance.yahoo.com/news/wall-st-rallies-kick-off-211602545.html Yes, tax hikes will slow growth but the cliff deal demonstrates that the House Rs aren’t completely delusional.

Isn’t it pretty clear that the over-regulation of businesses and the concentration of economic decision making in Washington that naturally follows is the big impediment to growth? I’m more likely to start or expand my business if I know for certain that I can keep even half of what I make than if I can’t tell from month to month what new regulations or special taxes or employment requirements I might face next year.

Absolutely right, LarryG… government is just one variable, and frankly speaking as a small business owner myself, it’s a very small variable. It wasn’t a big variable when I thought about starting it, and it hasn’t been a big variable in the 9 years I’ve been operating.

The big variable is always the same: can I sell enough stuff to cover my costs? The government cannot answer that question for me.

If your business model relies heavily on what the government says it will do or won’t do, you might want to re-think it.

as I have pointed out in other threads – the Dems have a history and a tradition of NOT being spending cutters.

they’ve never claimed to be the party of cutting spending although at times they have done it.

The GOP, OTOH claims to be the Reagan Party of smaller govt and less spending – and they actually were for decades but that all changed under Bush and they still have not gotten back to their original fiscal conservative roots IMHO.

Heh, I’d argue, Larry, the GOP never was the “small government” party, regardless of how they tried to sell themselves. But, my concept of “small government” is much more…shall we say “austere”…than other people’s.

Forgive me, Larry. I get frustrated when one party or the other claims to be “the party of the people” or whatever, when their actions clearly say otherwise. I am taking that frustration out on you. Sorry about that.

“they’ve never claimed to be the party of cutting spending although at times they have done it.”

Obama routinely claims to be a fiscal hawk. He lied through his teeth on Sunday claiming he cut a trillion dollars from the budget in 2012. On May 24th, Larry’s hero Obama had this to say: “This other side, I don’t know how they’ve been bamboozling folks into thinking that they are the responsible, fiscally disciplined party. They run up these wild debts, and then when we take over, we’ve got to clean it up!”

Never claimed to be the fiscally responsible ones, eh? Larry the liar, how long will you continue with your outrageous falsehoods?

“On May 24th, Larry’s hero Obama had this to say: “This other side, I don’t know how they’ve been bamboozling folks into thinking that they are the responsible, fiscally disciplined party. They run up these wild debts, and then when we take over, we’ve got to clean it up!””

indeed.

“Never claimed to be the fiscally responsible ones, eh? Larry the liar, how long will you continue with your outrageous falsehoods?”

not what I said. What I said was that they do not have a history of being fiscal conservatives – and that is true.

“not what I said. What I said was that they do not have a history of being fiscal conservatives – and that is true.”

LarryG | January 2, 2013 at 4:45 pm: “they’ve never claimed to be the party of cutting spending although at times they have done it.”

Larry lies: “I do not think I’ve ever heard Obama claim to be a fiscal hawk….”

However: “Since I’ve been president federal spending has risen at the lowest pace in sixty years.” ~ Barack Obama, using the 2009 emergency spending as a baseline to dishonestly claim he’s a budget hawk.

I’ve now posted multiple statements Obama has made about being some kind of stickler against deficit spending, yet you still persist with the “Obama/Democrats never claimed otherwise” lies.

“and he DOES support the sequester.”

He does? That’s not what he told Romney and the American people in the 3rd debate. Is he just a liar like you?

However: “Since I’ve been president federal spending has risen at the lowest pace in sixty years.” ~ Barack Obama, using the 2009 emergency spending as a baseline to dishonestly claim he’s a budget hawk.”

I think we have a genetic problem here of some kind.

Just because Obama has had the lowest federal spending in a decade or that he supported the sequester in an agreement with the GOP (and continues to) – does not mean he has ever claimed he was a fiscal hawk.

I think where you are getting confused here is when someone does support a cut that that automatically means they are claiming deficit hawk status.

Indeed, Obama nor the Dems have a history of being deficit hawks and I’ve yet to hear Obama make such a claim that he is…

you’re just so used to twisting folks words that you don’t even know what you are doing …..

If you can show me words that Obama used where he said he was a fiscal hawk – I’ll admit it but only if you admit that you’ve screwed up with your word twisting.

Just because Obama has had the lowest federal spending in a decade or that he supported the sequester in an agreement with the GOP (and continues to) – does not mean he has ever claimed he was a fiscal hawk.”

More Lies: Obama has nowhere near the lowest federal spending in a decade. Federal spending in just 2008: $2.9 trillion. Federal spending in 2012: $3.729 trillion.

And once again, Obama in debate #3 disavowed any ownership of the sequester and promised it would not happen. I repeat: is he a liar like you?

“I think where you are getting confused here is when someone does support a cut that that automatically means they are claiming deficit hawk status.”

I’m not getting confused at all, though you are attempting to confuse the issue. You have long been saying at least Democrats aren’t hypocrites because they never claimed to be anything other than tax-and-spenders. Then you (incredibly) deny you even said that when all I had to do was scroll up 2 inches and copy/paste it.

“Indeed, Obama nor the Dems have a history of being deficit hawks and I’ve yet to hear Obama make such a claim that he is…

If you can show me words that Obama used where he said he was a fiscal hawk – I’ll admit it but only if you admit that you’ve screwed up with your word twisting.”

So, suddenly and out of nowhere the only operative term is now “budget hawk?”Budget hawk is merely a description of someone who works to contain deficit spending. Obama has routinely proclaimed himself to be a deficit slayer in spite of the reality of his horrific record. I’ve given you multiple examples of his statements now. And I’m not “twisting” anything, I’m simply quoting you and your hero’s lies verbatim.

More Lies: Obama has nowhere near the lowest federal spending in a decade. Federal spending in just 2008: $2.9 trillion. Federal spending in 2012: $3.729 trillion.

where’s your reference nimrod? and how much of that spending is what Obama advocated and Congress agreed with?

“And once again, Obama in debate #3 disavowed any ownership of the sequester and promised it would not happen. I repeat: is he a liar like you?”

but he agreed with the GOP to create the sequester, right?

“I think where you are getting confused here is when someone does support a cut that that automatically means they are claiming deficit hawk status.”

“I’m not getting confused at all, though you are attempting to confuse the issue. You have long been saying at least Democrats aren’t hypocrites because they never claimed to be anything other than tax-and-spenders. Then you (incredibly) deny you even said that when all I had to do was scroll up 2 inches and copy/paste it.”

nope. I said they have never claimed to be fiscal hawks like the GOP has claimed.

“Indeed, Obama nor the Dems have a history of being deficit hawks and I’ve yet to hear Obama make such a claim that he is…

If you can show me words that Obama used where he said he was a fiscal hawk – I’ll admit it but only if you admit that you’ve screwed up with your word twisting.”

“So, suddenly and out of nowhere the only operative term is now “budget hawk?”Budget hawk is merely a description of someone who works to contain deficit spending. Obama has routinely proclaimed himself to be a deficit slayer in spite of the reality of his horrific record. I’ve given you multiple examples of his statements now. And I’m not “twisting” anything, I’m simply quoting you and your hero’s lies verbatim.”

Google it, asswipe. Do you seriously doubt it or are you that ignorant?

” and how much of that spending is what Obama advocated and Congress agreed with?”

What dishonest gibberish. You could muddy the water with any President by using that standard. You said he has the lowest spending of any President in a decade. I gave you the raw numbers, do you understand simple addition and subtraction?

“but he agreed with the GOP to create the sequester, right?”

Not according to him in the 3rd debate when he ran away from it: “The sequester is not something that I proposed,” Obama said, of the $1.2 trillion in automatic budget cuts set to kick in on Jan. 2. “It’s something that Congress has proposed.” It will not happen. The budget that we’re talking about is not reducing our military spending. It’s maintaining it.”

Did he lie, Larry?

“nope. I said they have never claimed to be fiscal hawks like the GOP has claimed.”

It’s only now you suddenly cling to this term “fiscal hawk” like some retard. Do you think that fools anyone? You have repeatedly claimed a variation of the Democrats “never claimed to be the party of cutting spending,” so at least they aren’t hypocrites, and then you actually deny you said it in the same thread when I expose you as a liar. All you’re doing now is looking for a way out of your lies. You’re a ignorant, dishonest old man.

You could muddy the water with any President by using that standard. You said he has the lowest spending of any President in a decade. I gave you the raw numbers, do you understand simple addition and subtraction?”

nope. I doubt your numbers and am calling for you to back them up.

“but he agreed with the GOP to create the sequester, right?”

Not according to him in the 3rd debate when he ran away from it: “The sequester is not something that I proposed,” Obama said, of the $1.2 trillion in automatic budget cuts set to kick in on Jan. 2. “It’s something that Congress has proposed.” It will not happen. The budget that we’re talking about is not reducing our military spending. It’s maintaining it.”

but he DID AGREE to it, right?

Did he lie, Larry?

no more than the GOP did who now say they are opposed to the agreement they insisted on originally.

“nope. I said they have never claimed to be fiscal hawks like the GOP has claimed.”

“It’s only now you suddenly cling to this term “fiscal hawk” like some retard. Do you think that fools anyone? You have repeatedly claimed a variation of the Democrats “never claimed to be the party of cutting spending,” so at least they aren’t hypocrites, and then you actually deny you said it in the same thread when I expose you as a liar. All you’re doing now is looking for a way out of your lies. You’re a ignorant, dishonest old man.”

I’m not clinging to anything. I’m saying that the Dems have never claimed to be fiscal hawks and the GOP has and you are the one who tried to apply the phrase to Obama, not me.

I don’t dance for you, moron. Look them up yourself. It’s not like you don’t have plenty of time.

“I’m not clinging to anything. I’m saying that the Dems have never claimed to be fiscal hawks and the GOP has and you are the one who tried to apply the phrase to Obama, not me.”

What a liar. Larry: “Obama and the Dems have always been tax & spenders and have never made no bones about it.”

Same thing as a deficit hawk. Pathetic liar looking for a way out of his lies.

“can you not disagree without it?”

Can you not disagree without telling lies?

“it’s like trying to converse with a 5 year old whose been taught salty language and uses it for “effect”.

believe me, it does not make you look “smart”, guy.”

Larry, you aren’t worthy of civil discourse because you’re a liar, and you’re invincibly ignorant. It’s impossible to have a reasonable discussion with you. I couldn’t care less if you don’t think it looks “smart.” You demonstrate the opposite of smart on these threads every day.

The Dems have never, ever claimed to be fiscal conservatives while the GOP has claimed it as their heritage and every since Ronald Reagan it was true – until Bush, then the GOP abandoned their roots and became like Dems.